Taking your practice to the next level: Rich friends

One way to successfully cultivate a market is to know it inside and out. For advisors seeking to reach the elite level, this means developing a deep knowledge of affluent investors.

North America has seen a substantial increase in the number of affluent individuals in recent years. Estimates on the size and growth of the affluent market vary depending on the researcher, but one trend is clear: The number of high-net-worth individuals has grown substantially. Researchers also agree their numbers will continue to increase.

The Capgemini/Merrill Lynch 2005 World Wealth Report, for example, estimates there are 2.7 million individuals in North America with investable assets exceeding $1million US. Together, these high-net-worth individuals control $9.3 trillion US in assets. The report estimates these assets will grow more than 10% annually over the next several years, and reach $14 trillion US by 2008.

So it’s clear the affluent market is large and getting larger, albeit at a slower rate than previous years.

For individual advisors, this means you need only capture a tiny slice to realize tremendous success.

Personality Patterns No doubt you’ve noticed different wealthy clients don’t respond the same way to particular situations. One might react to a sharp market drop by wanting to discuss its causes and ramifications at length, while another would prefer you not talk about it at all.

You might chalk up these differences to the individual personalities, but there’s more to it. Russ Alan Prince, my research partner and co-author of The Millionaire’s Advisor, has identified nine distinct personalities which nearly all affluent investors fall into. These personalities form the basis of a high-net-worth psychology—a framework for understanding how affluent investors behave and what they want from investing and their financial advisors.

If you work with the affluent—or hope to—it’s essential for you to understand how these investors think and react. Here are the personality types:

Family Stewards

• Dominant focus is to take care of their families.
• Conservative in personal and professional life.
• Frequently not very knowledgeable about investing.

Phobics

• Confused and frustrated by the responsibility of wealth.
• Dislike managing finances and avoid technical discussions.
• Choose wealth managers based on a sense of personal trust.

Independents

• Seek the personal freedom money can provide.
• View wealth management as a necessary means to an end.
• Not interested in the process of wealth management.

The Anonymous

• Confidentiality is their prominent concern.
• Prize privacy in their financial affairs.
• Likely to concentrate their assets with an advisor who they feel protects them.

Moguls

• Want to be in control.
• View wealth management as a means to extend personal power.
• Decisive in decisions, rarely look back.

VIPs

• Wealth management lets them buy status possessions.
• Prestige is important.
• Affiliate with institutions and managers recognized as industry leaders.

Accumulators

• Focus on making their portfolios bigger.
• Performance-oriented investors.
• Tend to live below their means and spend frugally.

Gamblers

• Enjoy the excitement of investing.
• Tend to be very knowledgeable and involved.
• Exhibit a high level of risk tolerance.

Innovators

• Focus on leading-edge products and services.
• Sophisticated investors who like complex products.
• Tend to be technically savvy and highly educated.

What the Affluent Want Many advisors make the mistake of assuming that if they simply manage assets properly, their clients will be satisfied. Accordingly, they spend most of their time and effort trying to ensure satisfactory investment performance.

Unfortunately, industry research tells us this assumption is off the mark. While investment performance is certainly important to keeping wealthy clients happy, it’s not enough.

We see this clearly when looking at reasons wealthy investors give for switching advisors. One study, based on Prince’s survey of 449 wealthy clients who had changed advisors, found 87% left because of a poor service relationship. A mere 13% switched because of investment performance.

Specific reasons given by investors for dropping advisors speak volumes. These comments are typical:

• “Very little ever seemed to go right in our relationship.”
• “I wasn’t sure if he really knew who I was when I called.”
• “I never heard from him. It always seemed like I called him.”
• “I didn’t have a warm personal relationship with her.”

These clients are looking for excellent service highlighted by a strong advisor-client relationship. If you can provide this, you will have delighted clients who are likely to remain with you over the long term, while providing additional assets and referrals.

The Dissatisfied Affluent Despite the fact most advisors aspire to work with the affluent, most wealthy investors are generally not satisfied with the level of service they get.

According to our research, most affluent clients are decidedly unhappy with their current advisors and are likely to remain with those advisors only until someone they perceive as better comes along.

Only about one-quarter of wealthy clients rate their advisors as excellent. Such clients not only remain with their advisors, but also provide them with both additional assets and referrals. The remaining three-quarters (see table below) are likely to leave their advisors at any time.

While this is obviously bad news for the many advisors who aren’t serving their affluent clients well, it highlights a tremendous opportunity for those who design and run their businesses with an eye toward ensuring clients are content at every step.

So, foster your personal relationships with the affluent, or fail in your efforts to work with them at all. If there is anyone approach I would emphasize to dramatically increase your chances of success, it is to focus on your relationships with each of your high-net-worth clients. No other factor even comes close in importance, so begin today to build a priority on client relationships into your practice.

Copyright 2005, CEG Worldwide, LLC. All rights reserved. John Bowen is founder and CEO of CEG Worldwide, a U.S.-based global training, research and consulting firm.

(08/12/05)